What Is Market Efficiency?
Market efficiency refers to the Pareto optimal efficiency achieved under perfect competition.
Market efficiency
Right!
- Market efficiency refers to
- in reality
- The optimization of resource allocation will increase market efficiency, and the optimization of resource allocation lies in the comprehensive use of allocation methods. There are two ways to allocate resources: markets and plans. The market optimizes the allocation of resources through the price mechanism to improve market efficiency; plans to formulate various measures to adjust the allocation of resources and improve market efficiency through the acquisition of market information.
- 1. The liberal principle of resource allocation is the basis of the efficiency of resource allocation. The classical economics school represented by Adam Smith advocates the establishment of a laissez-faire market economy, emphasizing the price mechanism-the "invisible hand"-optimizing resource allocation and improving market efficiency. Smith believes that each "economic man" starts from self-interested motives and adjusts the "invisible hand" to maximize personal and social benefits through complete market competition, thereby achieving a kind of The natural trend of efficiency and balanced development is expanding. The Marginal School demonstrated with strict mathematical reasoning how to optimize the allocation of resources by using limited resources to bring greater benefits. Cardinal utility theory holds that this resource optimization allocation method should follow the equilateral principle. The ordinal utility theory uses the indifference curve tool to propose the "Pareto optimization" efficiency standard under perfect competition market conditions. Marx believes that in a commodity economy based on private ownership, the law of value has the function of optimizing the distribution of resources in various sectors, promoting scientific and technological progress, and improving market efficiency. Therefore, the improvement of market efficiency is based on a clear market structure and clear property rights, but the assumption of a perfect market is difficult to find in the real economy, so Pareto's optimal market efficiency must be weakened.
- 2. To improve the efficiency of market allocation of resources through government intervention. In 1933, H. Chamberlin and Mrs. Robinson proposed the "monopolistic competition theory" and "imperfect competition theory", indicating that the market efficiency under the imperfect competition market structure is lower than that under the perfect competition market structure. Market efficiency. In the context of the major crisis, JM Keynes (1936) proposed the idea of "demand management" in response to the inefficient market with insufficient effective demand, that is, the regulation of market resource allocation through national plans. From demand management to supply management, from directive plans in socialist countries to directive plans, to contemporary "government regulation" ideas, it has been shown that the way in which resources are planned for allocation plays an indispensable role in improving market efficiency. . The idea of planning the allocation of resources to improve market efficiency stems from "market failure" caused by monopolies, incomplete information, externalities, and public goods under market economic conditions. Therefore, this way to improve market efficiency is based on the optimization of resource allocation by the price mechanism.
- 3. Coupling, complementing and improving the market and plans, and improving the efficiency of resource allocation. The market's optimization of resource allocation is not a panacea, and government intervention to improve the efficiency of market resource allocation is not always effective. The way the market allocates resources is the basis, and the improvement of the efficiency of market resource allocation by government intervention is based on the optimization of resource allocation by the price mechanism. At the same time, due to the influence of incomplete information and other factors, the role of planners in the public sector government to correct "market failure" through planning methods may not be as good as it should be, and due to improper institutional arrangements and other reasons, Problems such as "rent-seeking" have arisen, but the emergence of these problems has not obliterated the important role of the government (plan) in improving market efficiency. Therefore, the improvement of market resource efficiency in actual economic activities lies in the following: on the one hand, based on the market allocation of resources, the market and plan of resource allocation must be combined to eliminate divisions and promote coupling and complementarity; Starting from the display and transmission of information, the reasonable arrangement of the system, and the correction of limited rationality, the "market failure" is minimized, thereby maximizing the market efficiency.